RMMLF Mineral and Energy Law Newsletter

(By Joseph K. Reinhart, Sean M. McGovern and Gina N. Falaschi)

Continuing from previous issues of this Newsletter, this report provides recent updates on the Pennsylvania Environmental Quality Board’s (EQB) proposed CO2 Budget Trading Program rulemaking, which would link Pennsylvania’s program to and implement the Regional Greenhouse Gas Initiative (RGGI) within the commonwealth beginning in 2022. See Vol. XXXVIII, No. 2 (2021), Vol. XXXVIII, No. 1 (2021), Vol. XXXVII, No. 4 (2020), Vol. XXXVII, No. 3 (2020), Vol. XXXVII, No. 2 (2020), Vol. XXXVII, No. 1 (2020), Vol. XXXVI, No. 4 (2019) of this Newsletter. RGGI is the country’s first regional, market-based cap-and-trade program designed to reduce carbon dioxide (CO2) emissions from the power sector. The proposed regulation would limit CO2 emissions from Pennsylvania’s fossil fuel-fired electric generating units with a nameplate capacity of 25 megawatts or greater that send more than 10% of their annual gross generation to the electric grid. The proposed initial emissions cap for Pennsylvania in 2022 is 78 million tons of CO2, which would decline annually.

The public comment period for the proposed rule ran from November 7, 2020, until January 14, 2021. The Independent Regulatory Review Commission (IRRC) released its comments on February 16, 2021. See Comments of the Independent Regulatory Review Commission, Environmental Quality Board Regulation #7-559 (IRRC #3274, CO2 Budget Trading Program (Feb. 16, 2021). The IRRC recommended that EQB (1) explain the choice to institute the program through regulation rather than legislation; (2) provide analysis of its statutory authority to enact the proposal; (3) consider recommendations from commentators on public health, safety, and welfare, economic or fiscal impact, and adequacy of data; and (4) delay implementation of the rulemaking for one year to give the regulated community an opportunity to adjust business plans to account for increased costs associated with Pennsylvania joining RGGI. Id.

In response to public comment, in March 2021, the Pennsylvania Department of Environmental Protection (PADEP) announced a set of equity principles to help inform the public on the implementation of the RGGI program and investments of the program’s proceeds. See Press Release, PADEP, “Wolf Administration Announces Equity Principles to Guide Investments Through Regional Greenhouse Gas Initiative” (Mar. 10, 2021). PADEP also engaged a contractor, the Delta Institute, to develop a plan to invest RGGI auction proceeds to diversify Pennsylvania’s economy and assist communities affected by changes in the energy sector.

PADEP released the final form rulemaking for the CO2 Budget Trading Program ahead of presenting the regulation to the Air Quality Technical Advisory Committee, Citizens Advisory Council, and Small Business Compliance Advisory Counsel at their May 2021 meetings. All three committees voted in support of advancing the rulemaking. Further information regarding these meetings and presentations can be found on PADEP’s RGGI webpage at https://www.dep.pa.gov/Citizens/climate/Pages/RGGI.aspx.

In early July 2021, PADEP released the comment and response document and additional regulatory documents for its CO2 Budget Trading Program. See id. PADEP’s final rule included a number of changes from the draft rule, including quarterly CO2 allowance budgets for 2022 in the event that Pennsylvania joins RGGI part way through the year, a modification to the limited exemption, expansion of the cogeneration (now combined heat and power) set-aside with qualifiers, adjustment of the waste coal set-aside allowances, clarifications to the strategic use set-aside, an additional PADEP commitment to perform an annual air quality impact assessment, and incorporating the equity principles. At its July 13, 2021, meeting, EQB debated and voted 15-4 to adopt the final regulation.

The final regulation will be presented to the Pennsylvania House and Senate Environmental Resources and Energy Committees and the IRRC for approval. The IRRC plans to consider the rule at its September 1, 2021, meeting. See id. If approved by the IRRC and the legislative committees, the regulation will be submitted to the Attorney General’s Office, and if approved, published in the Pennsylvania Bulletin as a final rule. Governor Tom Wolf intends to finalize the regulation by the end of 2021, and regulated entities could be required to begin compliance on January 1, 2022.

The rulemaking, however, continues to face opposition from regulated industry and the general assembly. Despite Governor Wolf’s veto of a bill that would have prohibited PADEP from adopting a greenhouse gas cap-and-trade program with-out specific statutory authorization in September 2020, see Vol. XXXVII, No. 4 (2020) of this Newsletter, the current legislature has continued to advance similar legislation in 2021. In January 2021, Senator Joe Pittman introduced Senate Bill 119, 204th Leg., Reg. Sess. (Pa. 2021), which would require legislative approval before PADEP could impose a carbon tax on employers engaged in electric generation, manufacturing, or other industries operating in the commonwealth, or enter into any multi-state program, such as RGGI, that would impose such a tax. The bill passed 35-15 in the Senate on June 14, 2021, and was sent to the House Environmental Resources and Energy Committee on June 15, 2021. Unlike the legislation vetoed in 2020 by Governor Wolf, Senate Bill 119 passed with a veto-proof majority in the Senate.

The rulemaking has also gained support in the general assembly. On June 4, 2021, Senator Carolyn Comitta announced that she would introduce legislation, the RGGI Investment Act, to create the proposed RGGI funding program. See Senate Bill 15, 204th Leg., Reg. Sess. (Pa. 2021). The legislation would establish several trust funds to distribute the estimated $300 million annual revenue generated through RGGI auctions. These funds would make targeted investments to support environmental justice communities, workers affected by energy transition, and Pennsylvania’s growing clean energy and commercial and industrial sectors. The bill was referred to the Senate Environmental Resources and Energy Committee on July 26, 2021.

Copyright © 2021, The Foundation for Natural Resources and Energy Law, Westminster, Colorado